GBP/USD Dives Lower After Election Poll

By IBT Staff Reporter On 11/30/99 AT 12:00 AM

The Cable has crumbled below its highly psychological 1.50 level and has undergone a huge selloff after a poll this weekend showed that the UK election is nearly a dead heat. Investors are worried that a balanced parliament may not be able to tackle the fiscal and economic situations facing the UK. This uncertainty drove the Cable lower and the Pound is clearly experiencing a relative weakness due to a surge in the EUR/GBP. The Cable is now recovering from intraday lows even though the psychological blow has been dealt. Investors clearly fear that debt issues in the EU could show up in the UK and the Pound is getting punished in succession. On the bright side, the UK's Manufacturing PMI printed slightly above analyst expectations and Net Lending to Individuals registered a surprising pop. The increase in net lending is a very welcome development since the BoE has been harping on the banks to lend out some of their cheap liquidity to individuals in order to jumpstart the UK economy. Hence, today's trading session does carry a silver lining. Meanwhile, investors are waiting on America's Manufacturing PMI. Should the U.S. number print weaker than expected, investors may continue to keep the Cable above intraday lows due to relative economic weakness in America. However, a strong data point could place further downward pressure on the Cable for the opposite reason. Activity will only head up as the trading week progresses. The RBA will make its rate decision tomorrow and the UK will release its Halifax HPI and Construction PMI data. Should the RBA hike its benchmark rate, this could help the risk trade across the board in anticipation of an improving global economic landscape. However, inaction or a cut by the RBA could yield the opposite.

Technically speaking, we've formed some new uptrend lines for the Cable to compensate for today's selloff. Our uptrend lines run through 4/30/2009 levels, or the 1.47-1.48 area. Hence, the Cable could continue to have support around this area over the near-term. Meanwhile, it will be interesting to see whether the currency pair can manage to climb back towards its highly psychological 1.50 level, now serving as a technical barrier. As for the topside, the Cable faces multiple downtrend lines and has an uphill battle.

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